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Effect of Flaming on Stock Price: Case of Japan

Author

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  • Tatsuo Tanaka

    (Faculty of Economics, Keio University)

Abstract

In this paper, we examined the effect of flaming on the stock price in the case of Japanese firms. Flaming refers to massively offensive comments on the internet that sometimes damage firms' reputations or performance. We collected 77 flaming cases during 2012-2015 in Japan and found that the flaming reduced companies' stock prices by 0.7%. The effect of flaming is nonlinear in the sense that a threshold level exists for the degree of flaming beyond which stock prices start to decrease. At the maximum, flaming reduces a company's stock price by approximately 5%. A decline in the stock price occurs only when flaming attacks the quality of the firm's core product and services, suggesting that flaming might be a motivation for firms to improve the quality of their products and services.

Suggested Citation

  • Tatsuo Tanaka, 2017. "Effect of Flaming on Stock Price: Case of Japan," Keio-IES Discussion Paper Series 2017-003, Institute for Economics Studies, Keio University.
    • Handle: RePEc:keo:dpaper:2017-003
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    Keywords

    flaming; stock price; internet; SNS; difference-in-difference;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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